The U.S. Chamber of Commerce, joined by six other trade groups, filed a lawsuit on September 28, 2022 in a Texas federal district court against the CFPB challenging the CFPB’s recent update to the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) section of its examination manual to include discrimination.  The other plaintiffs are American Bankers Association, Consumer Bankers Association, Independent Bankers Association of Texas, Longview Chamber of Commerce, Texas Association of Business, and Texas Bankers Association.

The plaintiffs claim that the manual update should be set aside because it violates the Administrative Procedure Act (APA) for the following reasons:

• The update exceeds the CFPB’s statutory authority in the Dodd-Frank Act.  The CFPB cannot regulate discrimination under its UDAAP authority because Congress did not give the CFPB authority to enforce anti-discrimination principles except in specific circumstances.  The CFPB’s statutory authorities consistently treat “unfairness” and “discrimination” as distinct concepts.  (To demonstrate the compliance burdens resulting from the update, the plaintiffs allege that the CFPB has provided no guidance for regulated entities on what might constitute unfair discrimination or actionable disparate impacts for purposes of UDAAP.  As examples of issues creating confusion, the plaintiffs allege that the CFPB has not identified what are protected classes or characteristics or what activities are not discrimination (such as those identified in the ECOA), and has not explained how regulated entities should conduct the sorts of assessments that the CFPB appears to be contemplating given existing prohibitions on the collection of customer demographic information.)
• The update is “arbitrary and capricious” because the CFPB’s interpretation of “unfairness” contradicts the historical use and understanding of the term.  The plaintiffs allege that the FTC’s unfairness authority does not extend to discrimination and that Congress borrowed the FTC Act’s unfairness definition for purposes of defining the CFPB’s UDAAP authority.  They also allege that the CFPB’s contemplated use of disparate impact liability when pursuing UDAAP claims flouts congressional intent and U.S. Supreme Court authority.
• The update violates the APA’s notice-and-comment requirement because it is a legislative rule that imposes new substantive obligations on regulated entities.

In addition to claiming that the manual update should be set aside due to the alleged APA violations, the plaintiffs allege that the update should be set aside because the CFPB’s funding structure violates the Appropriations Clause of the U.S. Constitution.

The CFPB filed its own motion for summary judgment in which it asserted various defenses and other arguments.

There is a docket entry in the case which states that the Judge expects to rule on the cross-motions for summary judgment by no later than September 8, 2023.  While one might think that the Court might take the easy way out by staying the case until the U.S. Supreme Court decides the CFPB v. CFSA case dealing with the constitutional issue as to whether or not the Bureau’s funding from the Federal Reserve System is valid or granting the plaintiffs’ motion based on the Fifth Circuit opinion in CFSA v. CFPB which held that the CFPB was unconstitutionally funded, the plaintiffs have urged the Court to rule in their favor based on their APA merits challenges described above. 

If the Court were to decide the case without reaching the APA merits challenges, I would have thought that the Court would have ruled on the cross-motions long ago.  Stay tuned for what could be a blockbuster opinion today or tomorrow.

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